WINDSOR, Conn., April 6 /PRNewswire/ -- While institutions are the dominant investment managers for most of the $2.2 trillion in corporate pension assets, a new study reveals that individuals are playing an increasingly important role in controlling one of the largest and fastest growing segments of that massive asset pool -- the $410-billion in corporate-sponsored 401(k) retirement plans.
According to a report by Access Research, a leading employee benefit consulting firm, approximately 16-million Americans actively participate in 401(k) plans offered by nearly 190,000 companies. Bob Wuelfing, Access president, notes that the recent rate of plan formation and growth in their assets has been dramatic. He says assets rose from $55-billion to $410-billion between 1984 and 1992, and will more than double in the next five years, surpassing $1-trillion by the end of the decade.
Several factors are driving the growth in assets, according to Wuelfing. First, is the shift among companies from defined benefit (where a certain pay-out is set by the employer) to defined contribution plans (where employee and/or employer contributions are predetermined). Defined contribution plans have grown from 30 percent to 36 percent of corporate pension assets in the last five years and are projected to reach 43 percent by 1997, he says. Another influence is the high participation rate among employees. Wuelfing says participation rates in 401(k) plans, for example, average 72 percent of those eligible. Account balances are growing, too, as workers see the benefits of the plans. The account balance of the typical participant is $20,000, with annual contributions averaging $2,800 per person.
Where are workers investing their nest eggs? It appears they are playing it safe. A guaranteed investment option remains the most popular choice among employees by a wide margin. In plans where a guaranteed option is offered, it usually attracts 60-65 percent of all participants directed assets.
Wuelfing says this will probably change, however, as a result of recent federal regulations which require employers to provide more and better information on investment choices to employees in 401(k) plans. This will undoubtedly lead to more asset diversification and even higher participation rates, he says.

New Plans To Be Formed by Small Companies

The Access study, "1993 Marketplace Update," predicts that most growth in new 401(k) plans will occur among smaller companies. The report forecasts a 56 percent increase in the number of small businesses (5-100 employees) with 401(k) plans during the next five years, and a 20 percent increase in plan formation among companies with 100-500 employees. Growth in 401(k)s among the largest companies (over 5,000 employees) will be less dramatic (less than 1 percent) because more than 95 percent already have plans. Despite the growth projected for small company 401(k) plans, the Access study reports that only 13 percent of eligible companies in this group will have plans by 1997.
While the direction of new 401(k) plan formation is undergoing a shift, so is the market share of firms providing record keeping and administrative services for these plans. The study reports that from 1987 to 1992, banks saw their share of the service market drop from 32 percent to 26 percent, while mutual fund companies more than doubled their market share from 8 percent to 17 percent. Insurance companies went from 17 percent to 14 percent; the number of companies handling these duties in-house dropped from 26 percent to 23 percent; and the share of consultants and third party administrators rose from 17 percent to 20 percent.
According to Access Research's Wuelfing, the recent success of mutual fund organization seems to be due to their user-friendly, participant-oriented services; attractive investment selection, tightly integrated with services; and excellent marketing and communications support.

Focus On Participants

"The 401(k) market is being driven less by the needs of corporate treasury or benefits departments and more by the needs of individual participants," says Wuelfing. As account balances have gotten larger, participant influence has grown, he says.
"The mutual fund approach to direct participant service has taken advantage of existing demand and helped fuel its growth," he says. The popularity of the "800" number participant service centers is one manifestation of this trend; another is the tremendous growth of participant-oriented education/communication programs, materials and "products" which are being used as a means of competitive differentiation by both investment managers and service providers, says Wuelfing.
"The "1993 Marketplace Update" was prepared by Access Research for the members of the Society of Professional Administrators and Recordkeepers (SPARK), an association of organizations serving the 401(k) marketplace. Information on the study and SPARK is available from Access Research, 8 Griffin Road North, Windsor, Conn., 06905, 203-688-8821.
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/CONTACT: Jeffrey Close of Access Research, 203-688-8821/

CO: Access Research, Inc. ST: Connecticut IN: SU:

CH -- NE001 -- 3336 04/06/93 09:01 EDT

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